OMG...Tax credits gone down WHY?

[bjf1]

Received a letter this morning. Tax credits going down from £6,000 per year to £311.00?
How do they work that out?
Income same so am confused.

Well, on the letter I received it claims that DH has taken out this money as dividends, but surely it should be classed as wages?

So If I tell them that the £2,000 per month is SALARY and not dividend, then I'm okay, yes?

As long as you've declared it as income in some form or other, that should be OK, but it's definitely best to check. I think your arrangement is a bit different from ours, because we distinguish between salary income and the dividend income. The salary goes through payroll, and NI contributions, pension etc. for Dh, myself and the other employee all come out of the company. The dividend doesn't go through that system - it's taken as a lump sum that dh and I "agree" in a "meeting of the directors" with signed minutes.

But if DH pays himself £2000 a month would that not be like getting £2000 net income (after tax) so really it's equivalent to a gross salary of £31,000?? Rather than £23000??

Shit, so I have basically ballsed up big time haven't I?
Will they just stop my payments from now on then, or do I have to pay it back in one lump sum(gulp).

Don't worry just yet! Like I said, our arrangement is different and you're really better talking to an expert.

Like Fatima says, is the £2K before or after you've paid the tax?

No you can pay back monthly if overpaid. I have a friend who's doing this. AS for ballsing it up I have no idea I'm afraid - you really need to get your DH to tell you exactly how his/ your income is worked out. It's not fair to leave you second guessing and taking the blame if it's wrong.

It sounds like you need professional advice, self employed will be worked out differently.

Not counting the 5k for your personal tax allowance was a BIG mistake :(

You still need to include that for tax credits! You might not pay tax on it, but you still have 5k! When you get a salary and apply for tax credits you don't just deduct 5k yourself....

Did he pay tax and NI on the £2000? If not, then I think this would be classified as a dividend. My DH gets two separate payments each month, one wages and one dividend.

DH says it's not wages it's a dividend.
But it's still the same amount of money whether a dividend or wages, no?
So as far as I can tell, I have not declared the personal tax allowance of about £5-6,000.
Will they accept this as a general stupidity oversight? Or will they think I did it deliberately to defraud them?

With regards to the NI: we get a letter each month from the accountant telling us that no NI payments are necessary.
But we do pay a very hefty corporation tax bill each year.

Not sure if it is applicable, but when my tax underpayment letter came in for over 10K (employer and hmrc fuck up, nothing to do with me, but underpayment nonetheless) I was ordered to pay it in one go as I have savings and investments. The only thing hmrc allowed is a 1mo tax-free grace period to gather the funds.

"1mo tax interest-free grace period to gather the funds."

But I don't have any savings or investments or even a job!!!

that is why i said I am not sure if it is applicable. just sharing what they did with me. i still don't think it was fair as the savings etc were all tied in ISA - an allowance that is now lost forever. i have spent the extra money on non-essential things without realizing i was underpaying (a complex case with redundancy payment partly in cash and partly in shares)

Your DH does have a job though and it will be a a joint debt not just yours.You need to get advice

Yes, you need to get advice from your accountant. My understanding is that you still pay tax on dividends. So he will have been taking out 2K net but presumably you've been declaring it as gross income instead of the 2K plus tax. If you go to them and explain your mistake they will probably not view it as fraud, but you will need to pay back any overpayments. As a rough rule of thumb generally for every pound you've underdeclared you will have been paid 41p too much in tax credits.

So if I underdeclare £6,000 I have to pay about 50% back?

Dividends aren't taxed under a certain value. I can't remember exactly how much, but I suspect around the £2000 per month mark. They then need to be declared on tax returns and any under tax paid. For example, my DH is paid £3,300 per month in dividend and I put £160 of that straight into a separate savings account to pay at the end of the year.
Sorry, being long winded, but what I'm trying to day is that he probably hasn't paid tax on that sum. I don't know if that makes any difference as far a child tax credits go.
Hope you get it sorted.

They take back overpayments from future payments to you.

Nagoo, really hope that's true. Don't mind living on baked beans for a year or so but could never actually find that amount to give over to them.
I think I will have to go to the accountants first thing Monday.

Me and DP bring home £27k between us a year before tax. We get £137 Tax credits a month. Does this mean we won't be getting any anymore?? I am seriously worried now :(

@LST... the new thresholds mean that, from April 2012, if you have a joint income in excess of £26,000 and one child you are unlikely to receive tax credits. If you have 2 children and an income over £32,200 the same applies. However, if you have 2 or more children and/or you also pay for childcare and/or there is disability in the family, there are exceptions. The HMRC tax credit calculator will be updated at the beginning of April.

Summary of 2011 Budget Changes